Good morning, everyone, welcome to our 2026 L3Harris Investor Day. This morning, really appreciate having all of you join us, both here in the room, who braved some elements over the weekend and even this morning, for those who are joining us by webcast. Today, the L3Harris leadership team will walk you through our strategy, segment-level capabilities, and growth drivers, and lay out our roadmap for long-term shareholder value creation, including our 2028 financial framework. Before we begin, just a reminder that you'll be hearing forward-looking statements that are subject to risks, assumptions, uncertainties, that may cause actual results to differ from that which is presented here today. Before we get started, if I could ask everyone to silence their phones and other electronic devices, really would appreciate that for here in the room. With that, let's get started. We're gonna start with a short video, sort of set the stage for today. Following that, our Chairman and CEO, Christopher Kubasik, will come up and talk to you about our L3Harris strategy.
In a world where the mission does not get easier, the threats don't get smaller, and nothing slows down, can you see us? We are leading the industry with a focused strategy: adapt fast, scale smart, accelerate growth. This isn't noise, it's who we are. A company built with intention, clear structure, deliberate scale, a portfolio designed to move fast, where growth is intensifying. We're engineering and investing ahead of the threat across space, missiles and munitions, resilient communications, and ISR, to go where others can't. Transformation isn't a slogan to us, it's how we prepare for what's next. While everyone else is waiting for the call, we're delivering the solution, aligned to our customers, aligned to our nation and allies, aligned with a focused vision for growth. We're locking in the coordinates while others are still searching for the threat. I'll ask again, can you see us?
Can you see us in your portfolio? If you can, thank you for the commitment, thank you for the investment, and thank you for supporting L3Harris. If you can't see us in your portfolio, over the next two to three hours, we're gonna tell you what we've accomplished, and we're gonna tell you about a bright future that is facing a very unique defense tech company, L3Harris, and we're excited to have everybody here. I will say, we're proud to admit we're probably the only Floridians that flew to New York this week, and it's great to be back in New York City. Many of you know that L3 was formed here 30 years ago, about four blocks away, so it's always good to come back to the city and see so many familiar faces in the audience.
I believe we're the best-positioned defense tech company in the industry, and we're gonna talk a lot about that over the next few hours. First and foremost, I think we act quickly. This environment changes on a daily basis, the financial markets, the political markets, the Department of War, executive orders. We and my team absorb the information, make a decision, and act quickly, and I think that is what's given us a lead relative to the others in the industry. We're scaling our business faster than anyone else, and we're gonna talk a lot about the investments we're making to get ahead of the curve. We're in a race, and we plan to win that race, and we're gonna do it through scaling smartly. The combination of going quick and scaling the infrastructure is gonna allow us to outgrow our competitors and the defense budget.
Going forward, I believe that capability is gonna be capacity is gonna be the new capability for the defense industry. You have to have the infrastructure and the assets to scale. We last talked at an Investor Day in 2023. We've been busy executing upon that strategy that we laid out at that particular day, what we're most proud of is we believe we have the best portfolio in the industry, it just didn't happen. Six and a half years ago, we merged L3 and Harris, merger of equals. Everything went exactly as we knew it would, almost flawless, the portfolio wasn't aligned with where we needed to be. We wanted to be a national security company, broadly defined, focused on national security. We made the tough calls, we shaped the portfolio.
We had 10 different divestitures totaling about $3.5 billion of revenue that just didn't fit our strategy or didn't fit our growth profile. Then we doubled down and made two acquisitions, as you know, in 2023. We bought the Tactical Data Links business of Viasat, all in anticipation of the future of warfare. Resilient communications is the key. Everything has to connect, everything has to communicate, I think we're seeing this every day in the conflicts around the world, specifically in Ukraine. We also bought Aerojet Rocketdyne. I think we had a great portfolio. We had capabilities in space, air, land, sea, cyber, but munitions were a missing part of our portfolio. We've invested in IRAD for seekers, we had weapon release, we had fuses.
The only way that seemed to get into the market was to buy the solid rocket manufacturer, Aerojet, when it came on the market, and we'll talk a lot more about that. Is the strategy working? It is, because you see it in these big wins, missionized aircraft around the world, missile warning and defense. You'll hear a lot about that, but we're gonna say it over and over again. We're the only company that has won Tranche 0, 1, 2, and 3. Investments we made five years ago are paying off, and the international software-defined radio is a high-growth market. We're also not ashamed to partner with companies where we don't have the technology. Some of these companies call us. Some of these companies, we call them. Our partnership is unique.
We see the convergence of AI hardware and software coming together in the work we're doing with Palantir. Missionized capabilities that we have, we're putting on platforms such as Joby and the Amazon Leo satellites. Of course, you know, we're open to much more partnerships as we go forward. Those of you that invest, and as we spend a lot of time talking to investors, this is what we hear back. Why would you wanna own L3Harris stock? Because we have a track record of meeting our commitments, our strategic commitments, our operational commitments, our financial commitments. You remember, back in 2023, we gave a 2026 framework that I'll talk about on the next chart, and we met those commitments.
We have a unique strategy, as I've laid out, the venture capital investments, the partnerships, the willingness, just like you do, to buy and sell to get the portfolio that you want, that is optimized to get the greatest returns. Talk about my world-class leadership team. Got a great picture of all the 11 people. We'll wait to talk more and more about that. The financials, Ken will go through this. You know, we have industry-leading growth, we have industry-leading margins, and if you look at our cash conversion, it's world-class. What's not to like? We're super excited over the past three years, and we're more excited about the future. This is what we showed back in 2023, you know, there was a lot of questions, understandably. Maybe a few didn't think we could get there.
You know, it was Ken's first day on the job. I think he stood up and said, "Yeah, not a problem. We can get there," and here we are. Not only did we meet these expectations, the guidance we gave last month exceeds every one of these, the revenue, the margins, and the adjusted free cash flow. Have 10 months to go, but we will get there, and that's why today we're gonna roll out our 2028 framework. The key message I wanna leave with you is this team does whatever it takes to make our commitments. You know, we rolled out at December of 2023, LHX NeXt. We said we'd take out $1 billion of cost in three years. We took out $1.5 billion in two.
This is on top of the $650 million we took out a few years earlier when we put the merger together. We're looking at every single part of the business. We're adopting AI tools. We're in the midst of our transformation over and on top of what we're already doing with the cost savings. We redid the front end of the business. You'll hear from Tania shortly after me. It's one of the few companies where you have a single person responsible for Congress, Pentagon, inside the Beltway, outside the Beltway, all over the world, our international partners and allies. I think this should give you all confidence and increase, you know, our credibility, which I'll admit we didn't have in 2023. Hopefully, we've proven and have earned it. Our focus is clear.
I talk about adapting fast, scaling smart, and accelerating growth. You're going to hear that throughout the day. This is understood and accessible by our employees, our customers understand it, and it will ultimately create value for all of our shareholders. We adapt fast, like the new entrants. Everybody loves the new entrants. They go fast, they're innovative, they're quick, they shorten the cycle. We're doing that. The primes, they invest with scale. We invest in scale like a prime. We have the capital to do so and the strategy. We're scaling smart, we're going quick, and we're trying to take the best of the best from the ecosystem in which we operate. That's just not words. Here's evidence. The DOW investment and partnership, which we'll talk about a little later, was a quick, thorough decision.
It's unique, it's creative, and I think it's gonna create a lot of value, not only for the new missile shareholders when we go public, but ultimately the L3Harris shareholders, as we will continue to own at least 80% of that company, consolidate it, run it like a segment, but also happens to be a public company. We talked about scaling. We have 2 million sq ft that we're adding. A couple years ago, we added 200,000 sq ft for two different facilities to build the space satellite factory of the future, one in Indiana, one in Florida. Those are up and running. They're state-of-the-art, they're full, and we have the capacity to execute on all the wins, and we have room for even more Golden Dome awards, hopefully here in the near future. Missionized business jets.
A decade ago, we jumped into this market, disrupting the market by bidding a Gulfstream G550, taking on what was known as Compass Call back then. Here we are, a decade later, we've delivered over 100 missionized jets around the world. We're winning orders each and every day. The strategy is working. We talk about disruption. I mentioned that in this world, we have the defense primes that you know. I feel like they get kind of misaligned and poorly spoken about in the media, but these are very good companies. Many of us came from a prime. They have backlog, they have a balance sheet, they have the capacity, the facility, the technology. These are great companies. Our defense industrial base and our national security would not be where it is today without them.
We have the new entrants that are coming in because this is a growth market. Why not? Right? We have the speed, we have the innovation, we have the sizzle, the cachet, and what we're trying to build over the last several years is take the best of the best. L3Harris has record backlog. We have a great workforce, 45,000 employees. We do annual engagement surveys. Our scores go up each and every year. This last year, whoever administers for us said it was almost statistically impossible to see a company improve this high in a one-year period. The amount of calls and resumes we get from other people and other companies that wanna join this, we think we're the hottest place to work in the industry, and we're having a lot of fun doing it. We have the facilities.
We have 33 million sq ft of facilities, and that gives us the ability to scale. At the end of the day, whatever the budget is, Tania will tell us here shortly, you need to be able to produce. Ken will tell you we're producing 100,000 components for missiles a year, 100,000. You know, I'm glad someone can do 500 or 1,000. There's more than enough room. Make your 1,000. We're doing 100,000 and have a plan to go a lot quicker. I mentioned we're very fast, we're very innovative, and I think we're unique in what we're doing, and this is how we've designed and worked to form L3Harris. The government relations I mentioned, you'll hear from Tania. The facilities, the workforce, we're really proud of what we built. We're never done.
We're constantly challenging our strategy, constantly looking out there to see how we can even make it even better, and we're spending a lot of time and effort smartly adopting AI tools to make us even more efficient and better performing. The portfolio is built for the future of warfare. Earlier this year, we went from four segments to three, and I think a lot of people were anticipating us to go to three, and I think a lot of people were assuming we were gonna bury Aerojet Rocketdyne somewhere else, which is kind of a common thing to do in this industry. You make an acquisition, you're accused of overpaying it, you bury it somewhere, and you never talk about it again. We didn't do that. We actually broke it out and highlighted it, and now we have the missile segment, right?
Which is basically Aerojet Rocketdyne and all the other components I mentioned from the legacy companies, the weapon re lease, the fuses, the seekers. This is a one-of-a-kind, world-class Missile Solutions company. Sam is running SMS. He wanted a new job in January, so we moved him around, and now he has the legacy SAS and IMS businesses for the most part. Jon, who was running IMS, is now running CSD, and this consolidated all of our resilient comms, our electronic warfare, and our WESCAM turrets. We talk about innovation and speed. This is what we're doing. Again, real evidence, real examples. The missile warning, missile defense. Five years ago, at the date of the merger, we didn't have one satellite in orbit. Five years later, we're a force to be reckoned with. I think we have over 50 satellites in production today. That is a game changer.
That is disrupting the market. That happened very quickly by investing upfront, understanding the customer, listening, making a decision, and investing. We talk about the software-defined radios. I mean, everything that's going on in Ukraine, it's a terrible situation, the reality is, you get to see how these products work in a real war, and going forward, everything has to work in a contested environment. People have PowerPoint charts, people have demos, people have one-offs that they built in their garage. The end of the day, you have to have these things work, and the threats evolve, and the Russian threat is constantly changing the way they jam these radios. In a relatively quick time, we're able to change the waveforms, change the technology, and get it back into the field. They don't have to send the radios to Rochester, New York.
It's all done remotely, and that is why we have the premier software-defined radio business in the world. Then we had the Aerojet Rock acquisition, and we knew it was a broken company, and we quickly, in less than two years, which surprised me, I can't lie, fixed this business. This business has caught up on its delinquencies. The customer relationship is better. We started investing on day one, hundreds of millions of dollars. Ken will talk more about it. We have billions to go to double, triple, quadruple production. This business was turned around quicker than I thought. We made quick, decisive decisions, immediately changed most of the management team, brought in expertise, highly motivated workforce, and things could not be going any better.
You know, the interesting thing, now that we have these three segments, we have the Space & Mission Systems, which is about half of our revenue. They're on the enduring platforms. You should think of the aircraft, the satellites, and this is more of a traditional defense contracting ecosystem, right? We have the contracts, we have the FAS, the cost plus fixed price. Pretty traditional. We have a couple things that are unique that Sam will talk about. We have CSD. This is the commercial business model. Nobody else has a commercial business model to the scale we do. Over 24% margins, we're not embarrassed about it, and we plan to make a hell of a lot more. 24% for a big part of this portfolio.
This includes the radios, it includes the turrets. We're working hard to get more and more of our products to be deemed commercial, so we can invest, go faster, increase the margins, and get the products to our customers sooner. We've been pretty outspoken as a company, fully supporting the Department of War in its effort to transform and get rid of all this bureaucracy, rules, and regulations. We're seeing some success. MSL, half of our growth tied there. Ken will give you a few more details on this in a little bit. I think it's a very unique, balanced portfolio. If you like traditional defense, if you like commercial, if you like growth, one-stop shopping, all is there.
I think it's pretty exciting, and we actually think each of these businesses deserves a different multiple that Ken will talk about, and I think we're underappreciated and undervalued relative to the growth and some of the numbers we'll be showing you later. Talk about the leadership team. You know, a lot of people work for different reasons. You know, some people want a sense of purpose, some people focus on the mission, a couple of these people want money, some want all the above. I like to work and have some fun, and I've been working for 40 years, and I can tell you, I have never had more fun than I had the last several years, and the next one's coming up, and it's all because of this team. We have a good time. It's a serious business. We're collaborative.
We get along, we debate stuff, we make a decision, and we move forward. It is a incredibly fun, exciting culture. We have people. It's kinda like a collection of recovering primes that have joined the team. Ken came from Northrop, but before joining us, he was a CEO of a defense tech startup. Sam was at UTC, couple different locations there. John was at Lockheed Martin. Tania, I think she joined when the Founding Fathers signed the Constitution, been around forever, can get us a meeting with anybody in D.C., pretty much anybody around the world. Amazing, amazing government relations. The functions, you know, a lot of companies look down on the functions, look up at the functions. This is a great functional team. Both Dave and Ed ran businesses.
Nobody wants to, you know, take advice and input from people in a function who've never actually done the job. Every one of these has experience. Heidi was a sell-side analyst. Mel came from UTC. Kim, Textron. Our General Counsel's here in the back, nervously wondering if he's gonna have to file an 8-K if any of us say anything that we shouldn't, but we're gonna say what we want, and he can file 8-Ks all night long for all I care. Christoph joined us, doing a great job. That's the team. We're super excited, and we have a great time, and I think you'll see the energy as they get on stage today. Again, I talked about the Missile Solutions.
I think it's a good point, time for me to tell you about what we're planning here, which is the government investment and the IPO. We basically have a market-leading company. We do have a market-leading company. We have a competitive moat built around 75% of the existing missiles, solid rocket motors, DACS, all sorts of components. When we decided that we needed billions of dollars to meet this demand, the demand signal is there. You've read about the NDAA authorizing seven-year, multi-year contracts. All this comes together to justify the business case. The $1 billion, the reason we wanted the $1 billion as an anchor investor, is to give us confidence that we can invest today, and we're investing in redoing the entire facility. We're taking a holistic approach. Every other company goes program by program.
Just in Camden, Arkansas, where we'll be later in a few days, Secretary of Defense, Secretary Duffy, will come down and visit us, talk to our workforce, so we're looking forward to having them in Arkansas. You will see hundreds of buildings, you know, program by program. Some are Army programs, some are Navy, some are Air Force. We're taking a whole different approach. We're gonna have all this stuff be interoperable, you know, easily switched over based on supply and demand. We have tactical missiles, intercept missiles, we also have strategic missiles. This is a game changer, and this will justify the growth. Secondly is speed, right? This is a national imperative. At the highest level, we need more munitions. This isn't JADC2 and all these things that sound nice that nobody understands. Missiles, we don't have enough, they need more.
We have the scale, we're scaling even larger to make more. This isn't time for experiments. This isn't time for demos. We need to crank out a serious amount of solid rocket motors, the OEMs that we work for need to deliver a ton of missiles, and this is the way to do it. Then, as I alluded to, I think it'll be interesting to see the valuation that this asset gets as we IPO it, because I believe the growth is undervalued and underappreciated, as we tend to have all of our businesses peanut buttered as a defense prime multiple. We'll see what the market says. We're excited about it. Just to wrap up here pretty quickly, this just shows we have a proven track record of investment 10 years ago, plus, we invested commercially in the software-defined radios, and now look at it. It is a growth engine, profit engine for L3Harris. Five years ago, the satellites, they keep coming. More to come. Again. You had to make the decision, you had to invest, you had to have a calculated risk. You can't study this stuff for weeks and months and years, and hire consultants. All of us have 25, 30 years experience. We know what the heck we're doing, and we're not afraid to make decisions. Here we are today, talking about missiles. Buying Aerojet Rocketdyne 2 and a half years ago, seemed like the right thing to do, not everybody agreed, here we are.
The ability to invest, IPO, and take the government money to be a preferred stock shareholder, convertible upon the IPO, is gonna give us a huge advantage, not only for L3Harris, but for our nation. You can see why I think we have the best portfolio in the industry. It's up for you to decide. Look, our customers are in a race against China and real threats, and the focus of their strategy is peace through strength. The only way you have strength, is you have a big defense budget, you have a strong defense industrial, a strong industrial base, and then you have the actual capacity to build stuff, and that's what the Department of War is talking about. We are their partner, we get the memo, we are doing it faster and faster than anyone else. The world is changing, the DOW is changing.
As I've said several times, we listen, the team forms an opinion, we make a decision, and we act. There's no confusion, we're in a race, too. We're in a race against our competitors, and I can assure you, this team wakes up every morning and plans to win that race, and I'm here to tell you, we will. Thank you very much, and let me turn it over to Tania.
Thank you. Good morning, everyone. As you all can see, I'm the only one who did not get the memo about wearing a pullover today. It was not in the forward-looking statement. I missed it. Tony, I blame you. We'll get started. Let me pick up where Chris left off, everyone. L3Harris has evolved tremendously since the 2019 merger of equals. We are uniquely positioned for growth, both domestically and internationally. My focus today is to show you how we get there. I wanna walk you through the threat environment, the budget environment, and then map our capabilities to the demand signals we are receiving, and then turn it over to the segment president, who will go into more detail. Before we dive in, I wanna highlight three key points that Chris touched upon.
First, this administration is laser-focused on rebuilding the defense industrial base. Production capacity is being treated as a national security imperative. Congress is supporting that imperative by driving multi-year procurement authorities, accelerating unique contractual mechanisms, and leveraging DPA tools to drive throughput across the defense ecosystem. The second point, allied burden sharing, national security strategy, and the National Defense Strategy. This is more than short-term political pressure to increase military spending. This is about restructuring FMS processes to drive capacity. From our perspective, this will increase visibility into the international markets. Reduce the transaction friction we see across international military sales. The final point that I wanna highlight for all of you, is the idea emphasized in the NDS around advanced capabilities to drive and enhance deterrence. What's important there, is you are seeing the focus on space, missile warning, missile tracking, ISR capabilities, resilient communications.
These advanced capabilities have become major modernization priorities, not just domestically, but internationally. When you combine a multi-theater threat environment that looks like this, with a focus on industrial capacity and allied burden sharing, you end up with a durable demand signal that goes beyond any single administration. Let's talk about the threat environment. You are all tracking that there is a war raging in Europe today, and the Ukrainians are bearing the brunt of it. What the Europeans recognize, is the security reality for them has changed dramatically, and they are preparing to meet that threat head-on. In the Indo-Pacific region, whether we're talking about Taiwan or North Korea, there is increased accelerating Chinese gray zone activities in those regions, but also very aggressive fly in. V ery aggressive, I'm not gonna say attacks, but very aggressive military actions taking place in the Indo-Pacific to test Taiwan's defenses, and frankly, to test U.S. resolve in the region. In the Middle East, you can see what's happening today. Obviously, the Iranian threat is significant enough to trigger sustained policy attention. All of these things together are driving significant demand signals for key L3Harris capabilities. Let's talk for a moment about U.S. defense spending. 2025, we were operating on a continuing resolution, fairly flat with the 2024 cycle. In 2026, we saw the PBR come in, that was also flat with 2025. What we did not expect was reconciliation to pass, with $113 billion going to the Pentagon.
Our new baseline, when we think about defense spending, we're talking about $1 trillion, in the range of $1 trillion. That new baseline is what Mike Rogers and Senator Wicker are talking about when they talk about increasing defense spending. Whether we get to 5% of GDP or not, doesn't matter. The baseline has changed. Defense spending is going to increase. On the international side, obviously, the allied burden-sharing narrative has forced NATO to increase their military spending from 2% of GDP to a commitment to get to 5% by 2035, 3% in direct spending, 1.5% in infrastructure spending. Across INDOPACOM, we are seeing Taiwan's 2026 national defense budget increase 20% year-over-year, with a focus on a new air defense system called Taiwan Dome.
They plan on exceeding their defense spending by 3% of GDP by the end of 2026 and hitting 5% of GDP by 2030. That's incredible. In South Korea, we're seeing an 8% increase year-over-year. A lot of focus on ISR and C2 coming from the South Koreans. In the Middle East, Chris just completed a recent trip that was driven by customers wanting access to L3Harris capabilities. They are also growing their defense budgets. Lots of interest in the Middle East around ISR, resilient comms, and space, and our space-based capabilities. Let me take a step back for a moment. What we see is a reset in the security environment. Policy changes have reinforced this new shift.
The budget reflects that change. The fastest-growing segments of global defense spending are aligned with L3Harris capabilities: space, missile production, ISR, and resilient comms. That alignment underpins our confidence in sustained and durable growth across the framework Chris outlined. Having said that, let me turn it over to KB, who will go into more detail from the Missile Solutions segment. Thanks.
Awesome job. All right, good morning, everybody.
Let's see. All right, I'm gonna talk for a little bit about the MSL segment. Before I do, I just wanted to maybe talk a little bit about, you know, myself and how I ended up at L3Harris. Chris mentioned, I had a previous career at one of the defense primes. I also have, I think, a little bit of a unique experience in that I worked at one of the defense tech startups. I was the CEO of a new defense tech company. You know, I've got the sorta big defense prime experience, I've got the new tech kinda startup experience, that kinda never-ending valley of death that seems to just continue to stretch out. Now I'm at L3Harris, and I've got to say, it really is the best of both worlds.
We move fast, we listen to the customer, we make decisions, we invest, we're seeing the results. It really has been a great experience in my time here. Let's see. As we built the MSL segment, really, you know, going from 4 - 3, we thought it was really important to design a pure play Missile Solutions company that has both breadth and depth, and I think that's what you see here with MSL. In terms of capabilities, I'm not gonna focus too much on solid rocket motors, 'cause I think you all know that we do that, but there's a lot that's important in this portfolio. Advanced technologies, Chris mentioned some of the infrared seekers. Divert and attitude control systems is probably an underappreciated part of what Aerojet Rocketdyne did and what MSL does today.
It's not just about propulsion, but how do you precisely control a missile to get it where it needs to be precisely, which is really important, in particular, when you have an interceptor, which is, I think, why you see that we are on every interceptor program in the U.S. inventory. Munitions, fuses and igniters, an important part of the portfolio, air-launched effects. We'll talk a little bit more about Red Wolf and Green Wolf. There's a model back here in the back of the room, and we're excited about that. We're on contract now with the customer on that. We are investing pretty significantly in R&D for things like hypersonics.
We are, you know, absolutely a leader in that in terms of the ability to travel fast, not just propulsion, but again, some of the body and designs. We are the world's leader in advanced weapons racks and weapons release systems. In terms of growth drivers, we all know that missile ammunition growth, there is an incredible need for that. We've underinvested in missiles and munitions over the years. Unfortunately, as with the conflicts in Ukraine, the Middle East, defending our fleets in the Red Sea, we've used a lot of missiles, and it's time to restock. We have an opinion that this is gonna be a significant period of acceleration and then stable production after that. We'll talk a little bit more through that.
Certainly, Golden Dome is a piece of it. You know, we had kinda gotten out of the large solid rocket motor business for a while at Aerojet Rocketdyne, but we're back, and we'll talk a little bit more about our capability on that front. Low cost, extended range effects is absolutely something that we're focused on as well. The bottom line is, we stand ready to support the customer, we're going to invest, and we are the company that can scale rapidly to deliver the capability that is required. You know, I, and I think we have great relationships with the primes, and it's great that we have new technology, new entrants, but scale is important, and MSL is the company that can do it. Let's just talk a little bit about MSL. This is our 2026 guidance.
You can see we're gonna be at $4.4 billion, growing from $3.8 billion in 2025, That's high teens growth. You can see we're about 50% in the missiles business, missiles and munitions, the legacy Aerojet Rocketdyne propulsion. We do have space propulsion in here, that is inclusive of the business that will be transacted with AE Industrial Partners. That's in our guide. We do hope that transaction will close. We think it'll close in the second half of 2026. Most of that space propulsion piece will then come out. We will be keeping the RS-25, which is about $400 million of revenue in that space propulsion piece. We'll talk a little bit more about why that makes sense. Advanced effects.
This is about 25% weapons release, about 10% precision, navigation, and timing electronics, about 30% sensors, IR seekers, it's about a third classified. Just important capabilities that we, you know, can't talk about in this room. I wanna point out, importantly, it's not only the propulsion business that's growing. Advanced effects, as it came in and was put together from a few pieces of IMS and SAS, advanced effects is growing every bit as fast as missile propulsion. It has high double-digit, durable growth itself. We do have diversity of the portfolio. We're on over 30 missile programs, either internationally or in the U.S. inventory.
The demand and our ability to deliver drives high growth, and our operational excellence and the ability to yield margin out of the production programs will drive margin expansion. We are creating a high growth, again, end-to-end missile technologies company. As Chris mentioned, we put a lot of work, a lot of time and effort into making sure that we fixed some of the challenges that Aerojet Rocketdyne was experiencing. We hired the talent, not just at the executive level, but we've hired 500 and trained 500 employees on the production floors in Camden, Arkansas, in Orange, Virginia, in Huntsville, Alabama, and I think we've rebuilt the customer confidence. What's the evidence that we've rebuilt the customer confidence?
When the Department of War committed to put $1 billion in as the anchor investor into our plans to IPO Missile Solutions, they said, "We chose speed." It's clear, we are the company that can climb the ramp faster than anybody else. We are the company that can get those motors into the hands of our customers, so that they can get them into the hands of the war fighters to execute their missions. We've done that work. Today, we're doing the portfolio shaping, put MSL together, negotiating a deal with the Department of War, working to get the IPO complete this year, and then as we look forward, it's really about outsized growth. We're pushing the system in 2026 and 2027 to make sure that we get that high teens growth.
Once the facilities come online, 2028 and beyond, there will really be that sort of automated new factories, repeatable growth, high teens through the end of the decade, likely getting to 20% type growth as we near 2030. We think that there is a significant durability of that well into the 2030s. Look, let's just talk a little bit more about the capabilities of Missile Solutions. We do have generational demand. Chris mentioned it, program by program, on the MAC programs, Munitions Acceleration Council, set up by the Secretary of War and Deputy Secretary Feinberg. We're on 75%-80% of those programs, and there is a 3-4x on average overall increase in volumes. We'll talk a little bit more about that in the coming slides.
I mentioned 30, over 30 programs that we're on, and about 80% of those are sole source. In terms of the growth, again, durable, high teens growth in this business, not just in missile propulsion, but in divert and attitude control and absolutely in the advanced effects sector as well. Again, scale is important, right? We're moving faster than the primes. We're gonna be able to deliver on the capability. One of the reasons, as Chris mentioned, that we thought it was important to get the investment going today, was that we could start to invest today. A year is going to be important. Waiting for a year to drive the investment, waiting until the framework agreements are actually on contract and delivering, waiting then to invest, would mean others have the opportunity to catch up in a market that has significant demand.
We believe that we are in a race, we believe that this investment enables us to get a head start, and then we believe that we'll be able to win that race by staying ahead. Certainly, margin expansion opportunity as we automate our factories, as we get onto multi-year contracts, as we get the factories humming, we think that there is absolutely margin expansion into the mid-teens. Quite frankly, the only limiting factor on margin expansion, 'cause we will deliver strong margins on our production programs, the only limiting factor on the margin expansion is that we will always invest in R&D. Not that R&D itself is the limiting factor, but it will yield new development programs in areas like hypersonics, advanced effects, you know, unique capabilities around how solid rocket motors burn.
We will always have some early-stage development programs in the portfolio as well that will be, you know, below average margins. Just another way to look at how we fit across the missile value chain. We're on tactical missiles, we're on interceptors, and we're on strategic missiles. If you think about the near-term growth drivers, we are building a new facility for GMLRS. That's the one program that is sort of split between us and the legacy ATK solid rocket motor business. Javelin, Tomahawk, munitions, fuses, all growing rapidly in terms of tactical missiles. Interceptors, as I mentioned, we are on every interceptor program in the U.S. inventory. PAC-3, THAAD, Standard Missile, all in the Munitions Acceleration Council and all growing significantly, and we've got another chart coming up to show you some of the data on that.
Again, into the strategic missile side of the portfolio, Sentinel, Next-Gen Interceptor, Zeus, multipurpose booster. We are producing big motors that I will tell you will be really hard for others to replicate. Some of these are, you know, the size of this stage. I would be curious to see how a new entrant may try to address that market. Let's talk about our competitive moat for a minute because I really think we do have a competitive moat that is deep and it is wide, and it starts with our people.
I've often heard, "Hey, the customer owns the technical data package, so someone else will try to come in and produce motors." I will tell you that our years of experience, our talented employees who know how to build these motors, who control what we call the MDP, the manufacturing data package, not how it's designed, but how it's actually produced, the 400 million hours of experience that they have in building these motors, is much more important and much more valuable than the design. You know, they are a source of unique knowledge. They pass it down generation to generation, training as we bring new employees in. I would just say our people are an incredible part of the moat, and do not underestimate the importance of the manufacturing process beyond the technical data package. Portfolio.
We've talked about the portfolio, just another way to look at it for a minute here. We do produce product for the Army, the Navy, the Missile Defense Agency, certainly Golden Dome will be there, as well as the Air Force. In terms of production, you know, Chris talked about scale. We have over 4,000 acres where we produce our propulsion capabilities. Again, whether it's solid rocket motors, Divert and Attitude Control Systems, fuses, igniters. It takes a lot of space, it takes a lot of facilities. We have over 200 buildings today. We're gonna bring about 60 more online. We are absolutely embracing AI in terms of how we ensure the quality control of our production. We're certainly gonna be embracing robotics and automation as we bring the new factories online.
Chris mentioned capacity is the new capability. Agree 100%. Let me just focus for a minute on the adapt fast part of this chart. Again, we have moved back into large solid rocket motors. We're bringing facilities online. We've repurposed what was back in the day in Sacramento, California, now into Camden, Arkansas. We're ready to move to support all things large, solid rocket motors. Just there, we're on five or six programs that we support. Air-launched effects, you can see Red Wolf here. We're really excited about that, working with the Marine Corps to bring a low-cost air-launched effect to market, hypersonics. We have significant capability in the world of hypersonics. I wish I could talk more about it, much of it is classified.
Scaling smart, we are gonna invest $3 billion. I will say it's a bit of a temporal investment, 2026, 2027, 2028, as we bring the facilities online, it should start, largely be more of a normal CapEx profile, consistent with a 2 - 2.5 percentage points of revenue with the rest of the L3Harris portfolio. In terms of accelerate growth, the combination of the two, we believe we grow this business from, again, $3.8 billion in 2025 to about $6.3 billion in 2028. We do this in Alabama. We've already got new facilities in Huntsville for inert, so anything that doesn't go boom. Arkansas, we're already clearing land and starting construction for Advanced Propulsion Facility 1. Very excited about that. We know how to do this.
We've been building new facilities already. We have a large GMLRS, Javelin, and Stinger set of facilities that we've been building, both in Arkansas and Virginia. We're gonna take that expertise, move it to APF 1 and APF 2, bring those online as fast as possible, be able to get these motors built. Importantly, I mentioned RS-25 previously, so the motor, or the engine for Artemis, it is produced on our Canoga Park campus in California. That is also our divert and attitude control system, center of excellence, we are making investments to be able to produce more DACs consistent with what we're doing on the propulsion side, that's why we wanted to make sure that we kept the RS-25, an incredibly talented workforce, an incredibly important facility.
We will also start to do additional large, solid rocket motor work there, both Sentinel and Next Generation Interceptor as well. I think you know about the geopolitical drivers, but just wanted to put a little bit of data in front of us around the capacity expansion. These are some of the Munitions Acceleration Council programs. THAAD, today we produce about 150 systems. We're gonna 3x that. Standard Missile, about 700 systems today, we're gonna 3x that. PAC-3 is going 4x, and Tomahawk launchers, we're seeing a 5x demand increase. These numbers are largely pretty solid. We've been working closely with our customers, whether it's the missile primes and/or the Department of War. Chris and I have spent a lot of time in the Pentagon, making sure that these are understood and locked in.
Just in terms of our priorities, again, we're gonna expand our competitive moat. We're gonna rely on our incredibly talented and experienced employees. We're scaling for this generational demand. I've been in this industry a long time, 30 plus years. I don't have the 40 years that Chris has, but I'm getting close. I've never seen a demand like this, and we are absolutely investing to scale at a speed, with quality, and with deliveries that nobody else can. Certainly, we want to get the Department of War investment complete and the IPO complete here in 2026. With that, I've got a quick video, and then we will go to a break.
Transformation starts with an honest assessment of where things stand. At the time of acquisition, the company was significantly behind on solid rocket motor deliveries. Just one program was delivering ahead of contract. Manual manufacturing processes, outdated facilities, high attrition, and years of underinvestment severely limited the company's potential. The mission demanded more.
Defense contractor L3Harris agreeing to buy rocket engine maker, Aerojet Rocketdyne, in an all-cash deal.
What followed was decisive investment and focused execution to increase manufacturing speed and scale by integrating automation, robotics, and digital transformation across operations. We are building and upgrading more than 60 facilities to double and triple solid rocket motor production capacity, all to strengthen our ability to deliver innovative propulsion at the pace the Department of War demands.
We will now take a 10-minute break. Your attention, please. Kindly take your seats. The program will resume in approximately one minute. Ladies and gentlemen, please welcome to the stage Jon Rambeau, President of the Communications & Spectrum Dominance segment.
Good morning, everyone. Thanks for the opportunity to talk to you a little bit this morning about the Communications & Spectrum Dominance segment. I'm Jon Rambeau. I've been in the industry now for 30 years. I can tell you, three decades go by pretty quickly when you're having a good time. Especially the last three and a half years that I've spent at L3Harris has been a particularly energizing part of my career. It's great to be part of a company that is able to move with decisive speed, agility, invest smartly, place strategic bets. Right now, to lean into a relationship with a customer here on the domestic front that is different than any I have encountered over the last three decades.
They're serious about driving change, not just in defense, but in defense industry. I think L3Harris is incredibly well-positioned to meet that customer demand. I think that sort of ties into the overall vision for Communications & Spectrum Dominance. We, from a capability point of view, offer products and solutions across the entirety of the electromagnetic spectrum. The products that we provide to our customers are typically used on the front lines, so they really matter. They have to be in our customers' hands when they need them, and they have to operate as intended every time, so those customers can do their jobs and return home safe to their families.
From a business point of view, Chris talked a little bit about the thought process behind the three segments. As you look across the L3Harris Corporation, it's really hard to find a company outside of L3Harris in this industry that has been a traditional player, that has been able to figure out how to do commercial business at scale in a defense environment. L3Harris has done that not just once, but in multiple product lines across the company. Those have now been brought together as part of the CSD segment. When you think about CSD from a business point of view, think commercial business model, think commercial products, think high volume. We're gonna deliver 2.3 million pieces of hardware in 2026 alone. This really is a high-volume commercial business. A little bit more about the segment. As I said, commercial business model.
We'll deliver mid-single-digit growth over the next several years. We'll do that at significant commercial margins. We're what really help drive this portfolio to deliver the outsized margins that you see year after year in line with our guidance. From a capabilities point of view, number one, resilient software-defined radios. This is our tactical radio business. I know a lot of you focus on this business. This business is doing well on the domestic front. It's doing just as well on the international front. I'll talk a little bit more about that and how we're scaling this business as we get into the presentation. Passive sensing capabilities, Chris mentioned our WESCAM business up in Canada. What you see in the photo on this slide is a WESCAM sensor mounted on an unmanned air vehicle. We do encrypted data links for weapons and for unmanned systems.
The TDL acquisition that we made several years back has exceeded our expectations from a revenue point of view. We're seeing increased demand, not just on the international front... I'm sorry, not just on the domestic front, also on the international front, and we're seeing Link 16 in places where it has never been before. Link 16 is now operating in space. That TDL acquisition was a good one. That business is performing above our expectations. Counter-drone systems, we'll talk about the Vampire family of systems. This is a smaller part of the portfolio now. It has a lot of potential to grow as we're just seeing explosive production of military drones around the globe. No place that you're seeing them more visibly than in the conflict in Ukraine today. We also have, within my portfolio, advanced electronic warfare capabilities.
Think about the Next Generation Jammer program, for example, is part of this business. Drivers for growth, there are really three that we're focused on: modernization of advanced communication systems, that's modernization of tactical radios for the U.S. Army, as well as for militaries around the globe. Operations in contested environments. We've never had a greater need for the advanced waveforms that we provide on our software-defined radios or for the ability to provide our advanced EW solutions. The rapid proliferation of military drones around the globe, how those are gonna change conflict, and the way we need to defend against those systems. Digging a little bit more deeply into the portfolio, there are four main components in how we've structured the business. As I said previously, tactical communications, tactical radio is the single largest part of the portfolio today.
We have our data links business, encrypted communications, electronic warfare solutions, the second-largest part of the portfolio, the electro-optical sensing business. We also have our advanced night vision goggle business as part of this portfolio. Not the largest part of the business, but again, a market-leading position here, where we produce the tubes that are used in the goggles that are really the discriminator, that allow our customers to see in substantially degraded visibility environments. We continue to see that business see strong demand domestically in the international market. Overall guidance revenue for 2026, about $8 billion this year. We're gonna be growing to about $9 billion by 2028. From a mix point of view, international was about 35% of the revenue for CSD last year.
It's gonna be 40% of our revenue this year. We're seeing a significant increase in demand from customers internationally. Margin guidance about 25%, consistent with how the business performed last year and how we continue to see it performing into the future. About 80% of the revenue that we do in CSD is under that commercial product model, where we invest in advance of demand, we build capacity, we have product on the shelf ready to go when our customers need it. A little bit more about our competitive moat in CSD, and as you would have imagined, it really is that commercial product model. It's about three things for us in CSD: it's about depth, it's about breadth, it's about speed.
From a depth point of view, we have market-leading positions in each one of the four wedges I showed you on the prior slide. If you think about whether it's tactical radios, night vision goggles, encrypted data links, across the board, we have very strong positions, and those positions generate the resources for us to continue to invest in advanced technology and continuing to scale our production capacity to support our customers in the US and abroad. From a breadth point of view, over 12,000 employees in the CSD enterprise, and outside the US, we have 10 global business hubs, where we also have production operations. We're able to support our customers locally wherever they are in the world.
Millions of systems fielded across our customer countries, over 130 customer countries to date. This year alone, we'll take orders from over 100 nations around the world. Speed, agile, high-capacity production. The picture that you see at the bottom of this slide is what's known as our Jefferson Road Operations Center. It's located in Rochester, New York. It is the heart of our tactical radio business. If you haven't had a chance to visit this facility, I would strongly recommend make some time to go see it. It is very impressive. The facility would rival the scale of any commercial electronics manufacturing facility. We're pushing a very large volume of standardized product through this factory every day.
Because we self-fund our R&D, we're able to deliver next-gen technology to our customers ahead of need, so that when they need the product, it's there, it's off the shelf, and it's in a configuration that's gonna be useful for them. A little bit of an example. Last year, we got a call from the U.K. military. They urgently needed some tactical radios to support an operational unit in the field. From the time we took that phone call till we had product in the operator's hands in theater, 26 hours. 26 hours from phone call to fielding. That's because we have so much standard product moving down this line. Our radios are about 80% common.
There's about 20% of the hardware that's tailored to the individual customer, and then we load it with that software-defined capability and the waveforms that are needed for that particular customer and their environment. We're able to turn that very quickly because we have so much standard product coming down the line. We can support them, whether they're in the field conducting offensive or defensive operations. A little bit more about the threats that are driving that demand in those offensive and defensive environments. First off, from an offense point of view, you're gonna go into combat, what's the first thing that you need to be able to do? You need to communicate. You need to communicate consistently, it needs to be secure, and it needs to be safe so that the people who are using those radios don't become targets.
The Ukrainians are facing some very sophisticated threats based on some of the new Russian technology that's being fielded from a jamming point of view. The resilient waveforms and radios we're providing in Ukraine allow the Ukrainians to circumvent these advanced threats, to continue to communicate effectively in the battle space. The advanced electronic warfare solutions that we provide are able to reduce the effective range of these systems, which gives our customers additional freedom to maneuver in battle. From both an offensive and a defensive point of view, I'd ask you to think a little bit about the Indo-Pacific Theater and how U.S. and our allies would traditionally navigate, detect, track, and target something in that environment. By radar, right? It's a very effective technology.
The problem is, with some of the sophisticated systems the Chinese are now fielding, they're able to detect the source of those radar signals, geolocate them, and then our customers become a target. What we're providing is electro-optical and infrared sensing technology, which gives additional modalities to our customers to perform that same navigation, detect, track, and target without putting any energy out into the atmosphere. You're not able to be detected, and you don't become a target. It's a really important capability that we're fielding for our customers today. Finally, from a defensive point of view, I talked about the rapid ramp-up of military drone production around the globe and how that continues to challenge our customers, and again, no more visibly than what you're seeing in Ukraine.
Our Vampire family of systems is modular, it's adaptable, it's low cost, it has both kinetic and non-kinetic effects that can defeat drones of all shapes and sizes. We've incorporated our artificial intelligence algorithms into the system, so it can detect and track drones at very, very long ranges, again, using those same electro-optical and infrared systems that I just spoke about. Across the board, to counter these advanced threats, we're seeing L3Harris product and technology in demand. What are we doing to scale up our production capacity? We're making targeted investments in growth product lines, and there really are three here. Resilient communications. We're gonna deliver over 140,000 tactical radios in 2026 alone. Passive sensing, we'll be delivering over 600 electro-optical infrared turrets this year.
From a counter-drone system perspective, we expect deliveries to increase by a factor of four between now and 2028. We're investing. We're investing in partnership with Ken and the Missile Solutions team in a shared facility in Huntsville, Alabama, where we're gonna be producing the VAMPIRE counter-drone systems, and we anticipate getting that factory to a point where we'll be able to produce 20 to 40 systems a month by the end of 2026. We're also investing in a new electro-optical infrared sensor manufacturing facility in Rochester, New York. Our large, world-class manufacturing facility today for WESCAM is located just outside Toronto in Canada, and we wanna have greater access to the U.S. market. We have an administration that's insisting on U.S. production capacity. We're responding to that demand. We're gonna put a facility in Rochester that's gonna increase our access to the U.S. market.
Overall, we're committed between now and 2028 to a 40% expansion of production capacity in these growth product lines. We're scaling up production. What are we doing to ramp the output of product through these factories? Are we advancing? I need somebody to help me advance the slide. There we go. All right. How does it all come together? What does this look like in terms of production output and how that drives increase in our installed base? Resilient comms, in 2023, we had about 1 million tactical radios out there in the field. By the end of 2026, that's gonna grow to 1.3 million, in 2028, 1.5.
As we look back to when some of these radios were delivered, about 500,000 of the radios that are fielded today, particularly with the international community, are 10 years old or older. They are ready for refresh. Our customers are actively engaged, and you're seeing that international demand come through in the refresh of that inventory. We anticipate a couple hundred thousand of those half a million radios that are more than 10 years old are gonna be replaced between now and 2028. From a passive sensing point of view, 7,000 sensors installed across the world in 2023, that's gonna grow to over 8,500 by the end of this year, and that'll be across about 300 different types of platforms, most of them airborne, but also in other domains as well.
We continue to see the increase in that installed base growing to about 10,000 systems worldwide by 2028, and why that's important is because those customers continue to need service on those turrets, as well as periodic upgrades and replacements over the life cycle. Even as we're expanding our customer base, we're going back and refreshing those customers we're already supporting. Finally, from a counter-drone system point of view, this is an area where it's so fast-moving, and our customers are working very hard to define their requirements. The biggest opportunity we're tracking here is the U.S. Army. It's a program called Unit Common. We anticipate this will be a billion-dollar or larger acquisition program.
The Army's going through a process right now of defining their specific requirements, which organization is gonna lead this acquisition. We see that really driving significant demand. We think Vampire is very well positioned to meet that demand. If you look at where the threat's going, the number of military drones being produced worldwide from 2023 to 2026 increased by a factor of 10, from 1.5 - 15 million a year. We think that's gonna double again between now and 2028 to over 31 million. Again, Vampire's gonna be well-positioned to meet that threat as it continues to increase. Across the board, substantially increasing our deliveries over the next three years in these growth product lines. To wrap up, before I hand it over to Sam, I'll just hit it again.
We're continuing to focus on strengthening and expanding our positions in those four core markets that I talked about at the beginning of my presentation. We're gonna continue to drive growth across those three growth vectors of sensors, communications, and interceptor effects for drone defense. We're gonna maintain those industry-leading margins that you've come to expect as this part of the L3Harris portfolio. We're gonna position for the future by making smart investments and scaling capacity. With that, thanks for your time. Look forward to taking some questions in a little while. I'm gonna turn it over to Sam Mehta. He's gonna talk about SMS.
Good morning. Thanks, Jon. Good morning. My name is Sam Mehta, and I'm privileged to be the president of SMS. A little bit about my background: I spent 25 years in the aerospace and defense industry. Prior to my time here at L3Harris, I spent my first 17 years at a company named Sikorsky Aircraft, where we operated largely, as you know, as a defense prime. I transitioned to Collins Aerospace, where I ran almost a pure-play commercial business for the last five or six years, and I'm looking forward to bringing that experience to this great business that we have in SMS. One thing I think has to be said very definitively: there's never been a better time to be in the aerospace and defense industry.
I will also tell you, there's never been a better place to be than L3Harris right now. Hopefully, you'll feel the same way I do. First, a little bit about Space and Mission Systems. We're really a combination of large parts of legacy IMS and legacy SAS. We offer a traditional business model, long-term, enduring, generational franchise programs. What is unconventional about what we offer is upper single-digit growth, and I'll talk a little bit about some of the drivers of that growth in a couple of our specific businesses. From a capability standpoint, these should look very familiar to you from SAS and IMS. Space-based missile and defense solution, building upon decades of experience, largely based upon weather satellites that we've been doing for many, many years.
If you're in bright, warm, and sunny New York City, you've probably very recently looked at an image of space for the weather. If you've been anywhere in the Eastern Seaboard, you've looked at an image of space for weather. I'd be willing to bet that that image was brought to you by one of our payloads operating on a weather satellite. It is that very same technology that we are now leveraging to make sure that we apply to missile warning and missile defense. I'll talk a little bit more about that applicability. We are the largest provider of missionized ISR and military avionics. A massive growth opportunity for us, one that we're capitalizing on, not just in the future, but literally every day, every week. I'll have an exciting announcement later on in the presentation.
We are the predominant company in maritime power, taking nuclear power, converting it to electricity on about 1,700 ships. If you heard more about concepts, programs like Golden Fleet coming up, we're well-positioned to be able to capitalize on that growth. Intel and product solutions, a fantastic capability, helping of DOW and other agencies within the U.S. government ecosystem, making sure that we're always up to speed on what other countries, maybe our adversaries, are up to. Mission-critical networks. This is our business that supports the FAA air traffic control. Just to give you a size, you know, we've been talking quite a bit about adapt, accelerate, but I want to talk a little bit about scale.
Last year, this business emission network successfully conveyed 123 billion individual messages across the air traffic control network, they did it with Six Sigma reliability. That's scale. Growth drivers, I'll talk about quite a bit as we go through the presentation. One of the things I want to make sure we convey about SMS, that we're an extraordinarily well-balanced portfolio. If you look at the breakdown of our revenue, of our $11.5 billion, there's actually no one part of the portfolio that's responsible for more than a third of our overall revenue. With that balance comes strength and diversity in the sources of revenue and the types of contracts we have. We're very confident in our 2026 margin guidance, we're extraordinarily proud of our classified business.
The hardest part of my job is not being able to tell you about the third of my business, the almost third of my business, that works in areas that keep ourselves, our allies, and our partners safe and secure every single day. I can tell you that of my 11,000 employees at SMS, about 7,700 of them have top secret or better clearance. 5,500 of those 7,700 work in engineering and technical areas. We're extraordinarily proud of supporting the customer's most sensitive classified missions. If you would like to compete with SMS, here's just a few of the things that you would have to do. Number one, you'd have to have differentiated tech, technical depth from a capability standpoint. What does that mean?
We have about 300 PhDs who have dedicated their entire technical careers towards not only perfecting, but in many cases, even developing the technologies that form the foundations of our customers' ability to be able to provide an essential defense capability. We're mission improvement. We have a legacy of customer intimacy. I'm very proud of the fact that 20% of our employees in SMS were actually, at one time, our customers. They're veterans, and they're some of the most talented and the most mission-oriented employees that we have. We have about 500 employees that are field service representatives that are actually deployed with our customers, in many times, in the most dangerous missions and on the front lines. From an agility standpoint, we are agnostic to where we land in the value chain. One of our fastest-growing businesses is as a prime in space.
We're also willing to partner with companies like Joby Aviation and provide missionized solutions. We're willing to become a prime on ISR. We're willing to become a component supplier to the fighter jet community. We can actually play with our flexible business model in many different elements and many different parts of the value chain. Why do we have such a strong foundation of growth? I mentioned before in space, the imaging, the spectral, and sensing system, a large portion of this portfolio is actually in the classified realm as well. We've been leveraging decades of experience of providing payloads, leveraging that to become more preeminent in the prime contracting space to provide full up satellite solutions. In the airborne domain, we have 70 years of experience in aircraft missionization, providing SIGINT capability to many of our customers around the world.
We've actually delivered F-35 on mission avionics systems throughout over 1,300 aircraft. On the sea, we have 80 years plus equipping 500 naval vessels with integrated comms, navs, and platform management systems. You know, I mentioned the work that we do on the intel and networks. There's this tremendous amount of FAA modernization occurring. We are an integral player in making sure that as we go forward, as our nation modernizes its air traffic network, we will be a very, very significant partner to the FAA in achieving that modernization. You know, I mentioned the different capabilities we have. It's also important to talk about some of the advantages we have in the market.
You know, I mentioned before, we adapted the same sensing solution that we have on our weather satellites to make sure that we leverage that towards missile warning, missile defense. We have the appetite at L3Harris, and certainly within SMS, to go ahead and invest ahead of scale. What you see there is a picture from a facility in Palm Bay, in Melbourne, Florida, where we've invested between Palm Bay and Fort Wayne, $250 million, making sure that we are ready to be able to manufacture and deliver at scale these advanced satellite technologies that are most important to our classified customers, and certainly for missile warning and missile defense. Of course, accelerating.
We're very well-positioned, with record backlog in our business right now, to be able to deliver upon that 2028 commitment of $13 billion of revenue. Why are we well-positioned? We have a more than $4 billion pipeline in missile warning and missile defense. You know, homeland defense, if you look at the National Defense Strategy, one of the things that the Department of War called out very clearly was the importance of homeland defense. The capabilities that we have developed through many decades of experience of providing these payloads, is going to make us an integral player in Golden Dome defense. We've provided missionized business jets.
Our model, our flexible business model that I mentioned before, we can take commercial business jets off a hot, active production line, in very short order, provide mission equipment, customization to that aircraft, so that they can fly, they can provide ISR capability to our partners, our allies, and our nation. Look, there are alternative solutions out there. You could go ahead, you can buy a purpose-built ISR missionized aircraft. As long as those threats that Tania talked about in her presentation are willing to wait many, many years before they act against you. What we've done is significantly cut down that lead time by providing creative, capable solutions that are platform-agnostic, that allow our customers to take a business jet, missionize it, put it into service in a fraction of a time that it would take a purpose-built aircraft.
You know, when I mentioned before, manufacturing at scale, we're not just talking about future investments that we plan to make in the future. We've gone ahead, we've actually demonstrated manufacturing at scale in our space business. Since 2023, we've doubled our capacity for satellite production. By 2028, we will have tripled our capacity for satellite production. We're not investing after winning the contracts, we're investing in anticipation of winning the contracts. We will be poised to deliver to our customers on time. We have a track record of delivery. We've delivered 80 contracts. We have a record space backlog to deliver against with this new capacity. You know, I mentioned a couple of the facilities, over 200,000 sq ft, Fort Wayne, Indiana, Palm Bay, Florida.
You know, as impressive as those buildings look from the outside, I can tell you they're even more impressive from the inside. We're adopting the most modern manufacturing methods available to make sure that we can go ahead and build and deliver with scale and speed. Digital infrastructure, working partnership, leveraging our partnerships with companies like Palantir to make sure that we infuse AI into our manufacturing capabilities to enhance efficiency. Very proud of the investment. We're gonna be extraordinarily proud to be able to make sure that we continue to deliver on time to our customers. One of the primary areas of growth driving our business in space, and why that capacity investment and increased capacity was so important, is the important opportunity that awaits us for missile warning and missile defense. I call it an opportunity. Realistically, this is defending us against an existential threat.
The important thing to know about L3Harris, SMS, we play a very large role in this, but L3Harris actually plays a role in this across the entire value chain. Take a few seconds to talk a little bit more about that. First of all, SMS, very active in left of launch, prevention. It's not just important to know what our adversaries are doing after they launch. It's very important to know and anticipate when they're preparing to launch. Who's preparing to launch? What's the timeline? What's the effect? We provide capabilities and solutions to the DOW and other agencies to make sure that we, our customers, and our government can adequately predict and accurately predict when a launch might be able to occur. That's an important capability left of launch.
If we're not successful in helping our customer preventing the launch, we will be successful in helping them warn. It's extraordinarily important to know exactly when our adversaries have decided to take action and launch. We provide imaging and spectral systems that are able to detect that as soon as a launch takes place, so we can provide that information. Of course, it's important to track the threat. We're the only company that has proven to track a hypersonic ballistic threat, the only company that has been able to prove that capability. We're well-positioned for follow-on opportunities in programs like Hypersonic and Ballistic Tracking Space Sensor. We have launched and delivered four satellites to the SDA, and we have 52 on production in order. This is that healthy pipeline I talked about on our earlier chart.
After you've tracked the threat, it's also important to make sure that you have reliable, resilient communications that CSD and Jon Rambeau and his team provide, to make sure all the important allies, partners, and agencies involved in dealing with that threat have the latest information as to how that threat is progressing. Of course, if all else fails, you need to be able to intercept that threat with kinetic force. That's where Ken and some of the propulsion products that he has in his business, along with the divert and attitude controllers, will help defend the country against that threat. We play in all elements of the value chain in this very, very important capability.
On the ISR market, you know, I mentioned not only the investments we've made and the incredible investments that we've made in capacity to make sure that we can quickly missionize these business jets and provide that capability to our customer. We're seeing unprecedented strong market demand. By the way, we are the market leader in this area. Much so that if you took the next 8 competitors and added up the number of aircraft they delivered, we'd still be the largest. We are 10 times larger than our next biggest competitor in this area of missionized business jets. You know, we have important wins. You know, we recently went ahead and announced Korea, our AEWC contract.
By the way, at the time that this chart was made, you know, we had $3 billion awarded since Q4 of 2025. As of last week, that is closer to $4 billion. We recently won a very important strategic contract with a NATO ally to provide missionized business jet capability, and we'll be able to announce that in the next couple of weeks, and that will add about $750 million of backlog to this business, with another at least $2 billion of options to follow. We have $20 billion plus of opportunity in the pipeline for this important capability. What do we focus on? What are our key priorities in SMS? Number one, we will continue to invest in capacity, technology, and modernization. The threats are evolving.
Our technology and our ability to be able to deliver to our customers must also advance and evolve. We'll partner. We'll work with the defense tech startups. We'll work with the primes. We'll work with component suppliers. We'll work as a component supplier. We'll work as a prime. Our flexible business model allows us to be able to work in all elements of the value chain. Third is execute, execute. We will meet or exceed our customers' expectations on delivery and capability. The Secretary of War has made it very clear to the defense industrial base that it is either execute or be executed. Fourth, we will remain focused ahead of the industry on strategic capability and talent to outpace competitors. You know, similar to what Ken mentioned about the artisans he has, the technical depth that we have in our business is a competitive advantage for us. We continue to invest in our workforce. We continue to invest in the development of technologies by that workforce that will keep us ahead of our competitors, and more importantly, keep us ahead of our adversaries. With that, I'm gonna turn it over to Ken Bedingfield to talk a little bit more about the financials.
All right. Good morning. I'm Ken. I've been doing this about No, I'm kidding. Just wanted to kind of wrap it all up with a little bit of kind of financial overview. I'll highlight some things that we've already talked about, but that I think are really important to underscore. In terms of commitment, as Chris mentioned, you know, we are a company that's very focused on saying what we're gonna do, and then going off and doing it. We deliver on our commitments quarter by quarter, year by year, and framework by framework. This will be the second financial framework that we lay out. We set the first one in 2023, delivering through to 2026. We're now gonna set another one to deliver 2026 through 2028. Talk through that in a few minutes.
Unlocking value, we've mentioned some of the strategic transactions. I'll talk a little bit more about that in this presentation. We'll certainly talk a little bit about capital deployment. Very clearly, investing in the business for growth is our first priority. We've got a lot of flexibility. We've got a strong balance sheet. We're gonna continue to pay a competitive dividend. We'll talk a little bit more through those details. Just to reiterate again, the financial framework that we set in 2023, at the time, we were sitting roughly at $19 billion of revenue. We were struggling to perform a little bit on some of our programs, 14.8% segment operating margin.
I will say, at that same time, we were investing to become a prime in space, and that was a part of it as well. As you grow into a new business, like that, you know, sometimes you're taking on some more aggressive contracts, and, you know, we worked through that. We had free cash flow of about $2 billion. At the time, we said, "We're gonna grow the business to $23 billion, we're gonna generate about 16% margins, and we're gonna generate $2.8 billion of free cash flow." A lot of folks looked at us and said: "Huh? How are you gonna do that?" The team went off and did it.
We move fast, we're agile, we're nimble, and we, you know, figure out how to add value, how to grow the business while increasing margin, which is not the easiest thing to do, and generating solid cash. As Chris mentioned, I think we are, if not the best converter of earnings into cash in the industry, certainly one of the best. This business generates as much cash as some of our competitors who are significantly larger than we are. Just to touch again on the, on the margin side, I would say, you know, one of the things that we're certainly focused on is winning new business. You can see that we've been growing from $19 billion to $23 billion. Importantly, we win that boot new business with rigor, and we win new business that we can perform on.
That is what enables us to continue to drive our industry-leading margin rates up. We don't overanalyze, we don't overthink it, but we make sure that we have the confidence that we can perform on our programs. As we've continued to grow, we've also brought in some new leadership, brought in some new tools, brought in the ability to really effectively manage our programs to generate the margins. You heard about this from each of the segments, just to reiterate, so you can see it in one place. SMS, solid growth to $11.5 billion, solidly increasing its margins into the mid-10%. That's call it 70, 80 basis points of increase in margin rate, so significant. CSD, $8 billion business with about 25% commercial operating margins.
As we put MSL together, again, the purpose-built, Missile Solutions company, about $4.4 billion in sales and increasing margin to about mid-12% at MSL. Okay. We're gonna spend a few minutes on this chart. I think everyone was sort of wondering what was our next financial framework gonna look like. Wanted to spend some time talking about our 2028 targets. We are going to grow our revenue to $27 billion in 2028. That is an 8% organic CAGR as we work through some of the divestitures and other transactions that Chris mentioned. That is a $5 billion increase in sales. As we look at segment operating income for our next financial framework, we're gonna generate $4.4 billion of segment operating income.
That's a 9% CAGR, growing faster than our sales as we continue to generate strong and growing margins. That is gonna result in an increase of $1 billion of additional operating income in 2028. In terms of cash from operations, we're gonna generate $5 billion of cash from ops in 2028. That's a 15% CAGR, as we effectively continue to convert our earnings into cash. That's a $2 billion increase in annual cash generation. Even as we deploy capital into CapEx to grow the business, 2026, 2027, 2028 in particular, we're still gonna be able to generate three and a half billion dollars of growing free cash flow from today. We feel really good about these 2028 targets, our next financial framework.
I know that, I think this is one of the things folks were hoping to hear today. We are excited about it. I think it's really, you know, the result of a lot of hard work, a lot of positioning. The portfolio is right, the performance is right, the team is right to deliver this value to our customers, how we get product in their hands, and to deliver this value to our shareholders in terms of growing the business, expanding margins, and generating cash, and then ultimately deploying it in value-creating ways. Just in terms of kind of the capabilities, the areas of growth, in terms of the framework, how do we get from where we are today, roughly $22 -$27 billion in sales? You've heard about Communications & Spectrum Dominance growth.
You've heard about the significant capability, market, global leader in ISR. We've talked about missiles and munitions, the potential ultimately to double MSL sales towards the end of the decade. This is an important step in that process. Then space. You heard about the incredible work that our space team has been doing, taking decades in weather payloads and turning that into a position as a prime in the incredibly important mission of missile warning, missile defense, and missile tracking. Those are the drivers that ultimately get us to the $27 billion in revenue, about $13 billion in Sam's business at SMS, Jon Rambeau growing to about $9 billion in CSD, and as we mentioned, MSL, about $6.3 billion in revenue.
I think it's important to point out, you know, if you look at this chart, I don't think anyone else in industry is showing this level of balanced growth, showing this level of multi-domain growth, and showing the ability to climb the ramp at this pace. Chris mentioned, we listen to our customers, we form an opinion. We don't have to wait for all of the budget docs to come out and, you know, look through all the documents and see where all the funding's going, because we listen to our customers. We know where those budgets are going, or at least we form an opinion on where those budgets are going, and we invest. You've heard us talk about investing ahead of need. What that means is that we listen, we digest, we form an opinion, and we act.
That's one of the ways that we move faster than the competition. It's that long-lost art of actually listening, not just telling the customer what you think they want you to do or what you think you want them to do, you know? Actually listening, helping them solve their problems, investing ahead of need smartly. I don't think we've had any issues where we've invested and ultimately decided, "You know what? That wasn't the smartest investment." Okay, let's just talk about the segment operating income for a second. I think this chart kind of stands on its own. $3.4 billion in 2025, growing to $4.4 billion in 2028. Revenue growth is about 80% of the increase, we will continue to drive some margin improvement.
That's continued performance on our programs, that's continued growth in the international markets, and continued growth in our businesses that generate commercial margins. I remember when we were moving into the business, the space prime, right? Our competition was saying, "Oh, you know, they don't know how to be a prime. They're not gonna be able to do this." Guess what? We do know how to do it, and we are able to do it. It's actually more complicated to produce incredibly complex payloads and space systems than to do program management, manage a schedule, you know, manage the workforce. We've learned how to do it. You can see it. That's how we generate $4.4 billion of operating income in 2028. structurally attractive free cash flow.
As I mentioned, you know, we're not the biggest company in the defense industry, but I think we generate outsized free cash flow. As I mentioned, there are some other of our peers who are significantly larger than we are, we generate as much cash as they do. How do we do that? Industry-leading margins certainly helps. Growing the business, effectively managing our working capital, and then as we grow in some of these areas, really making sure that we get milestone-based payments or other payment structures that enable us to recover the cash as quickly as we can, as we put billions of dollars to work on investment. I often get asked, you know, some of the framework agreements of your competition have, we're told, relatively attractive free cash or relatively attractive milestone payments.
We'll certainly work to do precisely the same. As I mentioned, $5 billion of operating cash, $3.5 billion here of free cash flow, even after we're investing heavily in CapEx, 2026, 2027, 2028, before in 2029, we really return to that more normalized level of free cash flow, 2%-2.5% of sales. Capital allocation, again, we've talked on the internal investment side, baseline CapEx, 2%-2.5% of sales, $3 billion invested through Missile Solutions. Again, it's temporal, 2026, 2027, 2028. We'll return to a more normal level after that. It's interesting, you know, as those factories come online, the CapEx will start to come down and the capacity, the revenue will really start to increase.
Even though, you know, we're at, I think, a solid growth trajectory today, high teens, when those factories come online and they really start humming and spitting out motors. Chris mentioned, we produce over 100,000 motors a year in Missile Solutions. We get a lot of questions about these new entrants. You know, they can do 40 motors here, or they got $40 million of investment there. Our strategy, as I mentioned, is to build the capacity as rapidly as possible to deliver against the demand that is durable, that I haven't seen in my 30 years, demand like this before and then get a head start in a very attractive market and stay ahead. As Chris mentioned, we know it's an attractive market, we know we're in a race, but we fully intend to win it.
We do have flexibility. I talked about a strong balance sheet, certainly a well-aligned portfolio and a diverse portfolio. It's interesting, with the diversity of the portfolio, it's actually hard to be the fastest grower in the industry. You know, it's actually easier to grow if you have a single program that's growing really fast. We don't have any program that accounts for more than 5% of sales. With that diversity, there's always something growing, there's something shrinking, there's something about the same. Even with that diversity and the power of that diversity, we're growing faster than anybody else while expanding margins and generating some of the best free cash flow conversion.
We do intend to maintain a competitive dividend, we've certainly indicated that, from a share repurchase perspective, we will offset dilution as we again invest to grow the business. Just talking about unlocking shareholder value, we did make some announcements, some strategic announcements in 2026, early 2026, certainly the segment realignment, and I will say, you know, we've gone from 4 -3 . Importantly, the capabilities within this company are now structurally aligned in the right places within the segments. Before we had too many places where we did similar capabilities across multiple segments within the company. I think we've got that alignment laid out.
Ultimately, I think that enables us to grow faster, and then ultimately, I think it enables us to be more effective as we invest in the business and in our technology for future growth. Again, we announced the sale of the majority stake in our Space Propulsion and Power Systems business. We're excited about that. We're selling it to a very capable party in the industry, AE Industrial Partners. We're gonna maintain a 40% stake, and as they combine that with other investments, other businesses we'll be able to realize some upside from that. We're excited to partner with AE Industrial on that. As we talk about the Missile Solutions transaction, again, we're excited, incredible demand, and I'll talk a little bit more about that on the next slide.
Really, you know, again, we do have a portfolio that we think delivers significant shareholder value. If you think about SMS as more akin to a defense prime, we think it grows significantly faster, high single-digit growth in SMS, relative to most of the primes that are growing 5%. We're, you know, pushing high single digits, so significantly faster growth at SMS. If you think about CSD as a commercial entity, more like a midcap defense supplier, we're talking about mid-single-digit growth there as they work through the various parts of their portfolio, you know, some of the factory optimization that Jon's working. We see that, you know, very well aligned with sort of the midcap defense companies, and we think it's, you know, certainly compares favorably.
If you think about MSL, again, high teens growth, we believe towards the end of the decade, 20% growth, potentially greater than 20% growth. We think that grows well into the 2030s. Again, the capacity will just be coming online, 2028, 2029. It'll take some time to get those factories fully loaded with capacity and burning at full rate production into the 2030s. That's where we think really we see that +20% growth. Really excited about that, and that's ultimately why we decided to do what we did in terms of the transaction. Again, timing matters. The government putting its money where its mouth is, putting $1 billion to work, gives us the confidence to invest today, to drive the capacity increases to scale at speed that nobody else can.
We think that MSL compares very favorably in terms of growth, in terms of margin expansion, in terms of being a world leader in the markets that it's in. It's not just singular growth. Again, it's not just propulsion, it's not just solid rocket motors, it's Divert and Attitude Control Systems. AE, the AE sector within MSL is also growing high teens, so it's really a diversity of the portfolio as it grows. With that, I think I'm about at time. I will say, Chris has asked me to really focus on driving the growth in MSL, and pretty soon I'm gonna be taking that responsibility on full time. We don't have an official announcement to make today, but it is possible that this will be the last presentation you hear from me as CFO of L3Harris. It's been a great run. I'm actually not going anywhere, but excited to lead MSL through these times. It's a great team. I've got great partners in Sam and John, and really enjoy working with all the folks here and seeing how we can continue to add value for all of you. With that, we're going to take a 10-minute break, and then we'll go to Q&A.
We will now take a 10-minute break. Ladies and gentlemen, we will now begin the question and answer session. Please direct your attention to the panelists on stage. Ladies and gentlemen, please direct your attention to the stage.
Sorry. Sorry about that. Okay, we're gonna start our Q&A session here. We'll take questions here in the room, and we'll take questions from our webcast audience. If you're here in the room, you've got two options. You can raise your hand, and one of our mic runners will run you a mic over. If you are also here in the room and you wanna ask a question anonymously, there's a little QR code on the tables in front of you. If you're on the webcast, please feel free to use our Q&A feature in the webcast. Just click on the little link there for Submit My Question here. Why don't we get the... As we're getting the mics sort of situated here, why don't we take the first question from the web here?
This will be a Missile Solutions question, Chris, why don't we just start with you? You kind of talked about this a bit earlier. Maybe you can talk a little bit more about when you bought Aerojet, you know, did you really think it was gonna, you know, rise in value this quickly? Now that you've realized this additional value, why raise the equity capital to expand solid rocket motor capacity when the other defense primes are effectively self-investing?
Okay, great question. Well, we're still not sure what it's worth, but as I said, we turned it around and fixed it quicker than I thought. You see the demand, you see the growth, so it probably is, if I'm honest, a little better sooner than I would've expected. We'll see what the IPO brings. Like we said, this is a unique and creative transaction. You know, could we fund it ourselves? We already have $11 -$12 billion of debt. Gotta be careful to keep the investment grade credit rating. I thought it was a unique opportunity to allow the customer to share in the upside. You know, we're not the first company where we, they take a stake in it, and number one, it gives us the confidence to invest now. Ken said it multiple times.
I've tried to say it. We are building capacity. You saw those were real pictures. The dirt has been cleared. We're building this capacity. We're gonna be in a race, we're gonna win the race, and we're staying ahead of the competition. The $1 billion gives us the confidence, and again, this is a national imperative, this isn't some hobby that the DOD is playing around with. They need munitions. We're the only guys that can scale and deliver well over 100,000 in a couple years. Then I think it does unlock the valuation, and as shareholders of L3Harris, 80%, 83%, 84% of a bigger number sure beats what it is now in our financials. That's how I looked at it, and the board's been supportive. We kicked this around as a team, and we all thought this was a good way to go.
I would just add maybe one thing to that, and that is that we are modernizing the entirety of the ecosystem, the entirety of how solid rocket motors, divert and attitude control systems, fuses, and other munitions products are built. We are not just increasing the capacity for a single product, say, a PAC-3 missile. We're not just increasing the capacity for a Standard Missile or a THAAD. We are gonna be able to produce at greater scale across 30 different missile programs, and, you know, that's why we're doing things a bit differently than, say, you know, someone who's delivering more capacity of a product or a program. This is modernizing the entirety of the Missile Solutions, the entirety of propulsion, divert and attitude control, and fusing systems.
Excellent. Appreciate it. We'll take a question here in the room. Why don't we start way over here?
Thanks. Jon Godden at Citi. Thank you for doing this. I wanted to ask about the enduring growth profile, just in the context of the budget. I think it was very clear from this presentation, that you guys see accelerating growth for many years to come, and there were a number of charts going out to 2030 and commentary extending beyond that. What I often hear from investors is concern about the budget environment and whether it can support that growth. Perhaps you can elaborate on that.
Sure, let me kick it off. From the budget environment, I would say we've seen on the domestic side, a resetting of the budgets with this reconciliation package. We anticipate additional growth in 2027. Can I promise you that it'll be $1.5 billion?
Yeah.
$1.5 trillion? Absolutely not. I don't think anyone can make a promise today. We do know that the administration plans on building and reinforcing what they accomplished in 2027. That's on the domestic side. The other piece to think about is the international side, and the growth on the budgets in the defense ecosystem, both in Europe, in INDOPACOM, and the Middle East, are growing. It's up to all of us to work together to figure out how to leverage that growth and drive our capabilities forward, and that's exactly what we're doing.
I'll just add to that. I think it's really important to think about this beyond just a, you know, a simple math exercise of the budget's growing, we should grow with the budget. Our portfolio is very well aligned to the needs of our customers, not just the Department of War, but also our international allies. Because of that, we think that we're gonna be able to grow, you know, potentially faster than the budget. It's easy to say, "Okay, well, it's, you know, $1 trillion in 2026, and maybe it's gonna be $1.5 trillion in 2027." Takes a while for those to get outlaid and then ultimately, you know, to get on contract and then to generate revenue.
Again, importantly, we think the portfolio, very purpose-built, designed to be aligned to the needs of our customers, and that will drive the growth that we're talking about. I describe it as growing within the budget rather than growing with the budget. We say the budget, it's not just Department of War, but also international allies.
Yeah, maybe I'll just add one point to that, which is maybe the question for investors as well is, based upon what you've seen today, and heard from this team, are we focusing on the right areas? Do we think missile warning, missile defense, ISR missionized aircraft within that top-line number that Ken and Tania talked about, do you think they'll be disproportionately higher funded? Do we think resilient communications and electronic warfare in an increasingly dangerous international environment is gonna be a greater competency that, and a greater capability that our own customer will want here domestically? Do we think that munitions need to be recapped with solid rocket motors? Do the world have enough munitions and solid rocket motors? I would say probably not.
The question is, within that, you know, whether it's $1.2 trillion or $1.3 trillion that Ken and Tania talked about, are we focused in the right areas? Do we have capability? Do we have demonstrated expertise? Do we have programs of records in all these growing areas? Hopefully, I think the answer is yes. As Ken said, we're looking to grow faster than the budget wherever possible because of these capabilities.
Right here in the center. Just wait for a mic, please.
Hello, my name is John Kendall. I'm an investor for a long time. I started when L3 had its IPO way back. It was $22 a share. I still have those shares. Look at the increase over those years. I've been with Chris, watching Chris, as CEO with L3Harris, it's been up, up. Dividends have been fantastic. Growth has been fantastic, and I have to tell you, get in now because it's going up. I'm telling you this, and this isn't a commercial. I'm an investor. Started with L3, which was Frank Lanza, Bob LaPenta, from 10 Lockheed Martin companies, and that was the original L3, and now with Harris, stronger than ever, and growth has been incredible. I've made a lot of money. Guess what? I would say we're gonna continue to make a lot of money. Chris is the best CEO. He's fabulous. This is not a commercial. This company is programmed to go way up. I've been around long enough to see many administrations in Washington. Whichever administration has been in, we've still grown because there's always a need for defense to make sure the world is safe for freedom and democracy. Take it from me, this is the best investment going.
Mr. Kendall, do you have a question?
The question would be: Do you have any idea what this new IPO company will be named, and when it's gonna happen, or, and any any indication of value to start her off?
I just want to clarify, there's no relation between me and John, but, Ken, why don't you take that one?
We are working on the name of the new company that we intend to IPO. It will not be Aerojet Rocketdyne. It will not be Missile Solutions. We're working on a name that aligns with the growth, with the capabilities, with the culture of the company, and that is still to be determined. In terms of valuation perspective, you know, tried to lay it a little bit out on the previous chart when I was in my CFO hat, that we think that business is very attractive relative to other, you know, kinda defense tech names.
We think that with that strong growth, growing margins, and then ultimately solid free cash flow, once we get this kind of investment behind us, that we ought to be valued very much like some of those defense tech names, I won't name them by name here, but I think you all know what they are, and, you know, pick your valuation. We certainly think that as a standalone company, it is valued significantly higher than kinda where we've been, you know, kinda tied in with some of the defense primes. Even though we are a bit different, we are not a prime. We really are a fast-growing LHX is a fast-growing technology company. You see it. We're growing faster, we're differentiated on margin, and we're differentiated on cash.
We've all been trained in gun jumping, obviously. I don't know if there was an answer there. Second half of 2026 is the timing part. I'll throw it in the room. Is that Kristine?
Morning, everyone. Kristine Liwag from Morgan Stanley. Chris, Ken, and team, thank you very much for your presentation today. I thought that the building blocks, you know, were pretty clear. You know, look, 8% growth, CAGR, you know, is not a bad number. When you contemplate, you know, potentially the $1 trillion for 2026, the $1.5 for 2027, and with the increase for a potential $1.5, a lot of that is gonna go into hardware. You know, the 8% number doesn't look as exciting when you look at that backdrop to some degree. I was wondering, to what degree is your multi-year outlook conservative? Is this truly the floor regarding if these budget dollars actually materialize?
When you look at what the government wants for some of these programs, we're talking 300%, 400%, 600% increases over the next few years. How conservative is your guidance, and what are the variables you could pull to potentially accelerate growth? If the dollars materialize higher and faster than what we're all anticipating, how much of that can you really capture within this three-year timeframe?
Yeah, why don't we just go down the line? I think it's been said many times. I don't ever recall seeing an eight in the last 40 years. Please let me know who has used that number. You know, what can we do to beat the eight? Is probably the question at the end of the day, so.
Maybe I would say two things in that regard. I think there's an element here, and I'll be the one to say it out loud, sometimes you can't win for trying. I was on the stage, I think we were up with Chris in 2023, when everyone looked at our 2026 targets and said, "Boy, that doesn't seem conservative enough," right? Seems like you're kinda leaning ahead and leaning forward too much, and of course, we met and exceeded all of those. Now I guess, you know, guidance appears to be a little bit conservative. I'll say this, K ristine: I think importantly, you know, what Ken said, which is making sure that the appropriated budget makes its way through expenditures in a timely process. I'll just speak for my business. We're a long cycle business.
From the time that money gets appropriated, makes it through the OMB process, gets sent to the agency, and then turns into contracts that we deliver against and then receive payment against, all of that is not necessarily gonna match up within that same one-year timeframe that appropriation is made. I think there's gonna be a little bit of a lag effect, or I think, it never matches up in the exact same timeline. I'm hoping to be here, on the stage in three years, and, being able to validate the fact that that was extraordinarily conservative guidance. I think if we're able to do that, I think that will be a big win.
Yeah, I guess I'll talk a little bit from a CSD point of view, and just think back to my presentation, we talked about where the revenue's coming from in the business and how that mix is shifting from domestic to international. For us, I would say we're focused on making sure domestic budgets for our products and capabilities stay constant, and we see some incremental improvement year-over-year. A lot of that's coming from the U.S. Army and tactical radios. While the budget lines have shifted around a little bit, you look at HMS Manpack, now there's the Next Generation Command and Control program. If you look across those budget lines, you'll continue to see incremental increases in funding going through, and as the Army continues to experiment with technologies for next-gen capabilities, we are part of those experiments.
We're performing well in those experiments, as we have done in the past. I think we're gonna continue to be a strong partner to the U.S. Army in tactical radios. Going to the international piece of the equation, we're seeing strong demand from customers who are looking to modernize their existing L3Harris radios to maintain interoperability with U.S. and NATO allies, particularly as we see budgets increasing in the European theater. A lot of demand for the tactical radios coming out of Europe right now, which is driving a lot of that growth and that shift in mix that you're seeing from 35% to 40% this year. For us, it's about making sure the budget sees steady, incremental improvement at home, while we look to the international market for outsized growth.
I seem to have multiple personalities. I'm gonna give two answers in my current two different jobs. I'll start with maybe the CFO answer, Kristine, which is, look, when we built our forecast, the $1.5 trillion number wasn't even out there. It wasn't known. As you know, strategic planning, forecasting, is kind of an annual process. We build it, get it approved in the fall, late in the year, so late in 2025, we got this done. That's what's resulting in the 8% that, yes, I think is most likely, I would say, akin to a floor. I thought it was pretty exciting. Evidently, you didn't think it was as exciting.
You know, we're excited about this, and yes, we will work to outgrow this, just as we worked to outgrow the last financial framework that we set out. I do think, I do think it's a floor for all of those reasons. Just putting my MSL hat on for a minute, we will absolutely, the 7,000 employees and the leadership team of MSL will be working hard to drive growth. Most importantly, to get product in the hands of our customers and the war fighters, but going along with that, certainly driving the revenue and the earnings growth that we're committed to, and quite frankly, committed to exceeding.
Let me jump in just really quickly because I wanna answer your question from a structural perspective. When you think about the U.S. defense budget, one of the things that we have all become accustomed to is continuing resolutions and what that does. When we made the assessment to get to 18%, we looked at structural risks and opportunities. On the domestic side, we looked at the defense budget. There clearly is a trajectory for very strong growth, from the President's mouth to God's ears, hopefully, right? But we know we have to deal with a congressional body, midterm elections, and, you know, some push and pull from OMB about how we're gonna get to $1.5 trillion. That's a structural risk, but it's also an opportunity. On the international side, the defense budgets are growing. That is an absolute... You can look at it year-over-year, that is an absolute fact, right? Whether it's Indo-Pacific, whether it's the European budgets, there is a commitment to driving that growth forward. When we looked at how to balance what that growth number was going to be, we framed it with an understanding of what these structural risks and opportunities are. I don't know if that helps or not.
Yeah.
One of the things for international growth that we're looking at very carefully is how quickly they implement some of the FMS reform efforts, as an example.
Just to be clear.
Yeah
18, we referenced 18%, I think we meant 8%.
Did I say 18%? I did not mean 18%.
One of the segments will grow 18%. 8%, at least 8%.
I'll just give my perspective, and I think what's interesting about this administration, and if we're honest with ourselves, over the decades, there's always been this invisible hand that kind of peanut butters everything, right? If there's three contracts in a certain area, and there's three bidders, it's amazing how everybody wins one. I'm telling you, this administration is gonna reward those companies that perform, and they are gonna punish those companies that don't. We are currently performing, we plan to continue to perform, and I think that gives us a chance to win more than our fair share of business, which historically has been hard to do, and you've even heard people at pretty high levels say things like, "I won't be satisfied until somebody goes bankrupt for poor performance." You know, that's the mindset. We're trying to stay on the nice list. Maybe others are on the naughty list, I don't know. That gives us the opportunity to take more than our fair share, and that's what we're gonna do.
Great, let's take another one here in the room. Sheila?
Hi, I'm Sheila. I'm on the nice list, hopefully. I work at Jefferies still, I think. Maybe I wanted to ask about the free cash flow guidance in 2028. It's above expectations, despite CapEx being $1 billion higher than consensus. I guess, what's driving that? How do we think about working capital? On the balance sheet, how do we think about optionality, given, you have, a competitive dividend and, share buyback to offset any dilution?
Let me start on the cash flow question, and, you know, look, we are working really hard to figure out how to offset the CapEx that we're deploying. The biggest driver, I think, is ultimately gonna be the growth in the business, generating strong earnings of that growth, managing working capital, and then we're certainly gonna be doing our best to negotiate similar deals as what you've heard in some of those framework agreements. Then, we're gonna be working to deliver the product to the customer on schedule to ensure that we meet those delivery milestones to get paid. You know, we're, you know, just working hard to make sure that, again, we meet our commitments. We told you that free cash flow would be growing.
We're making some investments, and we're still able to grow free cash flow. Without those investments, revenue wouldn't grow as fast, earnings wouldn't grow as fast. We'll work the working capital, we'll get positive milestones, work to do, but we can get this business, even after spending the CapEx, we can generate three and a half billion of free cash flow in 2028, and we can generate $5 billion of cash from ops in 2028. It's gonna take, you know, a number of levers, but that's what we do. It's hard, but it's not as hard, certainly, as some of the technical side of things that our team does.
I, you know, our customers understand, they're all being successful businessmen and women, they understand business, and they know we're all investing, and they're more likely, and they've started talking about forward front-loading the cash, tying it to milestones. That is a key assumption in our 3.5 relative to, you know, the competitive dividend. You know, that's about $1 billion a year, and then the offset, the dilution's about $500 million. A billion five of the free cash will meet what Ken had laid out. That still gives us a few billion, you know, to be opportunistic, see what we want to do with it. I feel pretty confident that we have a good plan, and that's a lot of cash to create value, and I think we have a track record that we've proven we've used this cash to create value over the last several years, and we plan to do it going forward.
Great. Brock?
Thanks. You've mentioned a couple of times about international growth, maybe just a couple, you know, a question along that. One, what kind of investment is that gonna require? You're gonna have to build facilities outside the U.S. Two, how are you thinking about the current, particularly with Europe, relationship between the U.S. and Europe, and how that could impact that business or not?
Yeah, I guess I can start, others will probably wanna pile on with different aspects of international. For us, I think with respect to the European partners, you know, the relationship with the U.S. has shifted a little bit over the last couple of years, no doubt about that. There is an underlying commitment to interoperability across NATO, across European countries, with the U.S. and our allies around the globe, and we are the global standard for interoperability. I think that's continuing to trump any turbulence that there might be out there around the relationship with the United States right now. I also have found 30 years in this business that politics come and go, political rhetoric comes and goes.
The military alliances between the U.S. and our allies around the globe continue to operate pretty much the same, whether the administration and the tempo is up or down on the political rhetoric. I would tend to not pay as much attention to that as we are to looking at the budgets and what the needs are to be able to operate effectively as a nation and as a coalition partner. Again, we continue to see demand increasing for products across the spectrum of the CSD business globally. There are requirements from time to time for us to localize. I talked about those 10 locations outside the United States. Some of those are in existence today because of those commitments to localize we do it where it's necessary, we do it where it makes sense. We try to also maintain a high volume base of operations back here in the United States as well.
If I can just jump in as well. I wanted to highlight the fact that we are also aggressively working partnerships internationally, and we are as I mentioned during my remarks that Chris visited the Middle East, and one of the core partnerships that we signed shortly after he returned was a relationship with the Edge organization in the UAE to help drive some of those sales. In addition to that, when you see the markets expanding, L3Harris has landed companies in regions around the world. We would not necessarily, to answer the U.S.-European question, go to market as a U.S. company if we didn't have to or if we viewed it as a competitive disadvantage. We have a lot of tools in our toolkit to drive growth internationally.
Maybe I'll just add one more thing. You know, this administration has also been very supportive of increasing the number of exports we have. Part of that is some of the work they're doing on FMS reform activity to make sure that as we provide capability to our partners and allies, we cut through a lot of the red tape and the bureaucracy, frankly, that has kind of plagued that acquisition process through many years. We're seeing a lot of activity, a lot of very supportive activity from the current administration, making sure that our partners and allies have the best capability that we have to be able to export to them. I think that's gonna be a catalyst going forward for future growth as well.
Just a 10-second comment, and then I'll turn it to the boss. Customers are buying capability-
Yeah
S o if you have game-changing capability, they will buy it, even in the face of, you know, political or other rhetoric. We have not seen issues relative to where we have the best product in the world, like tactical communications on the battlefield, you know, like other areas within our portfolio.
Two quick points to answer your question. I don't see significant investment or production going outside the U.S. Doesn't mean we aren't gonna work with partners, maybe do some final assembly, but we're basically a U.S. company that exports, given the technology subject to State Department rules. The other thing I'll mention, you know, is the indigenous companies, right? The countries tend to work with their indigenous, which is great, but if you're doubling your defense budget, I can assure you, I spin this as a positive because it is, there aren't enough indigenous defense companies in all these countries to absorb all the work that they need, which I could argue actually opens up the market for us. You know, we're pretty excited we're gonna be 20%-22% of our revenue international. That gives us the high margins, gives us the better cash terms, gives us the better growth. Great question, thank you.
We'll take one from the webcast. This is probably, John, more directed for you. Can you talk to us a little bit about what's happening domestically with the U.S. radio budgets? Is that a risk area for your business, and if so, you know, how much of a risk, and what are the potential offsets for that?
I talked a little bit earlier about the budget lines for radios in the U.S. and how those are shifting a little bit. You know, historically, look for HMS Manpack, and you could find the radio budget. There's now Next Generation Command and Control NGC2 line, which is an additional chunk of the Army's radio modernization budget, you know, the Army's going through a process under NGC2 to, sorry, to experiment with a number of different technologies for next-generation capability. We are part of those experiments. We're performing very well on those experiments, we anticipate we're gonna continue to be a significant part of the Army's commitment going forward. The Army's going through a process of modernizing about half a million tactical radios. They've gotten through a little over 200,000 of those.
There's another 200,000 to go. We are continuing to see orders come in to include this year for significant quantities to continue that modernization process. Even as NGC2 progresses, we're continuing to see the Army invest in modernizing the historical tactical radios that have been fielded by L3Harris and will continue to be going forward. I think that from a domestic point of view, it's a little bit more difficult to follow, but the money's still there. Internationally, the demand is all about Europe. I think I referenced that the European partners are making significant, significantly increased investments in defense, and a good chunk of that going toward tactical radio modernization, to include companies like the Netherlands, Germany, a number of others that are actively investing in buying our capabilities.
Can I just jump in also on the tactical radio side? Domestically, you all are tracking the war fighter acquisition process that was released by Secretary Hegseth. There, he outlined the importance of commercial business model and commercial products. This business, domestically, is the original commercial product, right? Back in 2011 and 2013, L3Harris made the decision to invest non-reimbursable IRAD to drive growth in this area.
In a recent meeting Chris had with Driscoll, we underscored that point with him, and one of the things that we've learned, and one of the things we're actively involved in, is as the PAE structure, right, gets standardized across the Department of War, these acquisition decisions are going to be made at lower levels, and we are actively participating in the Ivy Sting and Project Convergence 6, so multiple Ivy Sting prior to the July Project Convergence activity, where we are highlighting and showcasing new products across John's portfolio, and it's an exciting time, frankly.
Let's take another one from the room. Let's go over here.
Hey, thanks very much. Good morning. Seth Seifman from JPMorgan. Ken, maybe can you talk a little bit about the, these contracts to scale up solid rocket motor production? You know, you mentioned maybe pulling forward some of the cash. We've seen that at some of the missile primes as well. You know, how should we think about how that works out? It seems like a fair amount of cash in the near term, kind of, you know, some of what bridges the, or allows you to overcome the CapEx headwinds in 2027 and 2028. Does that mean that that's kind of a cash advance, and future deliveries will see less cash associated with them? Is that not the right way to think about it? What's sort of just the big picture construct of these contracts?
Yeah, I would say, you know, from a contractual perspective, you know, we will certainly look to be bringing in as much cash as possible to offset the CapEx that we are spending in order to modernize the business and, you know, climb the ramp and deliver on the demand. Not to say that as MSL, we'll be able to do it alone. We're gonna be relying on our friends in the other segments to also drive growing cash flows in order to ensure that as one company, we get to our target of $5 billion in cash from ops and $3.5 billion of free cash flow.
The customer, whether it's the missile primes and/or the Department of War, and as I mentioned, Chris and I have spent, you know, a fair amount of time, and Tania, in the Pentagon, meeting with customers, they recognize that there's an unprecedented amount of investment that's going in to driving this outcome in terms of being able to deliver a product into the hands of the customer. They, I think, are willing, as a understanding of that, to ensure that our cash flow terms are appropriate. Again, they may not offset dollar for dollar, the CapEx, but that we'll be able to negotiate favorable cash terms.
I wouldn't call it an advance, but I would call it, you know, appropriate milestones to recognize the investments being made and the deliveries that, quite frankly, we will be making because we've already started to invest in modernizing the business. You know, we expect to have the same economics as everybody else.
Doug?
Great, thanks. I wanna go back to radios and the commercial model. I mean, Tania, I think as you were saying, the existing tactical radio, I mean, you were able to come in with your own money not really participate in the Jitters program with all that investment, and ended up winning. Very attractive. Two questions: Now, as you go to NGC2, if you're participating in these experiments and development, first, are you going to come out of this with a similar commercial model on the back end? Then second, how far can you take commercial contracting beyond just this tactical radio universe?
I mean, I can start and say absolutely, it'll be the same model going forward. We're bringing some capabilities to market this year that will give the Army access to 5G technology, which is one of the things that they're looking for, and our next generation of advanced tactical radio will be released next year. All that's being done on our own investment, and that's what we're bringing to these experiments, and that's what we're gonna use to convince the Army we are continuing to be the partner of choice going forward. The model will be absolutely the same. In terms of where we can apply the model within my portfolio, we're certainly looking to maximize that, so we're at 80% commercial now. Are we gonna get to 100%?
I don't think we'll ever get to a 100%, but we'll continue to be at or above the 80% threshold that you see us at today. Somebody wants to talk about the broader picture here.
Yeah, I'll just chime in. You know, different flavors of commercial business model. We've been pretty outspoken on this topic. A lot of this has to do with the cost accounting standards, federal acquisition, rules and regulations. It's ridiculous. Nobody else has that. I've been advocating pretty loudly, "Get rid of them." Everybody cringes, "Oh, my God, what would we do without them?" We'd run it like a damn business, is what we would do. If you have two competitors, night vision goggles, how much are mine? How much are yours? Pick a winner. I could be making 80%, I could be making 1%, I could be losing money. Who cares? We don't need to be allocating cost. I mean, it's just a cottage industry trying to take money and move it into rate pools.
It's the craziest thing I've seen, and I think we've been advocating each and every proposal we get. You know, it's not always investing your money up front. It's like it's a competitive, ask for a price, and pick a winner. We don't need DCA, DCMA auditing. What are your rates? What's your labor? The night vision goggles, $30,000 a piece. How many do you want? Someone bids 20, buy them from them. Next time, we'll figure out if we lower our price or take out cost.
Mm-hmm.
It's so much opportunity. Everybody loves a new entrance, everybody loves commercial. If you love it, let's play on a level playing field, all the primes, everybody. Ask for a price, pick the winner, and let's rock and roll. I'd be disappointed if half the revenue isn't commercial, you know, by the end of the decade. Let's wrap up. For the panel, just real quickly as we wrap up here, what are you most excited about looking ahead? Sam, why don't you get us started?
Yeah, listen, I think I'm really most excited about, you know, in these new re-segmented businesses, looking now one level below in the sectors and being able to take these common capabilities. You know, Ken said something that was very profound, right? We're now more organized by capability and what we offer, and we're already seeing, I think we're seven, eight weeks into this re-segmentation of the business, and we're already seeing a lot of synergy in the business. Not just cost synergy, but also synergy from a technical side. We have the technical community within, you know, legacy IMS and legacy SAS, and now they're working together to string together capability sets for the customer that will provide overall solutions, not necessarily just individual pieces of value chain.
I know we're always part of the same company, and that kind of collaboration was always encouraged. It's still much human nature, it's still much easier to do when you're all in the same organization and you work side by side on the same team every day. I'm really excited about the innovation side of SMS, and in being able to bring new capabilities to market, new capabilities to bear.
I'm excited about what's happening in the ecosystem. You know, I think that, having been in this industry for decades, defense has always lived in a fairly defined box. We're at a place where the customers are thinking differently. We're seeing new entrants come into the industry. It's got new energy. It's got a lot of external investment coming in. Given where we are as L3Harris, I like our odds in that environment.
From my perspective, really, really excited about our ability to grow the business. It's kind of funny because, you know, when I took over at Aerojet Rocketdyne about a year ago, I was joking in the first meeting, my opening comments were, "I'm sick and tired of being the smallest segment in this company." And we are still the smallest segment in the company but we are the fastest growing, so we're catching up as quickly as possible. So really excited about what we're doing to grow the business, to get the capability in the hands of the war fighter. I think it's gonna be a lot of fun. We have a great team at L3Harris.
We have a great team at MSL, and I'm looking forward to to seeing how we go, kind of climb that ramp, again, at a speed and a pace that nobody else can. I think it's great that there's lots of, you know, new defense tech companies out there that are highly valued and, you know, they're growing fast from $200 million to $300 million, or whatever it is. You know, we're the little segment within L3Harris, but in that new defense tech world, we're gonna be, I think, the biggest. We're gonna be that $4 billion company that's growing to $6 billion and then growing to doubling our revenue by the end of the decade. You know, look forward to showing some of those little guys who's boss.
I'm gonna jump in and say the world is changing. This administration is not afraid to break glass to get what they want. Companies in the aerospace and defense sector have a choice to make. They can either try and fight to hold on to the past or lean into the future. I'm really proud to be part of a team with a CEO that wants to lean into the future. That's what we're doing. You saw all of that happen when we made these changes across L3Harris in January, when we took this very exciting proposal to DoD on the MSLP. There's a lot happening. It's just a really exciting time to be here.
I'm most excited about the culture that we've built here at L3Harris. You're only as good as the team around you. I have a world-class team. We have a culture where we collaborate, we challenge each other, we make decisions quickly. We've talked about being disruptors. We're disrupting ourselves, we're disrupting the industry. The customer is receptive to us, I love it, I just have the honor of running a company where we're bringing forward ideas every single day, trying them. Some land, some don't. We're never gonna give up. We're gonna totally transform ourselves, and we think we're gonna ultimately transform the defense industrial base. Let me wrap it up.
Not to be rude, when this finishes, three of us have to go to the Pentagon for a 4:00 P.M., 5:00 P.M., and 6:00 P.M. meeting, we're kind of hoping we're gonna exit stage left and not have time to mingle. I want to thank a lot of people. I want to first thank my executive leadership team, great job. The whole team was involved. Some are still hopefully working back in Florida or wherever they are today. I want to thank Tony and the IR team, there's a lot to put on a production like this. This is pretty cool stuff. IT, comms, a lot of people, thank you. Video, you did a great job. Let's give them a nice round of applause because. Most importantly, I want to thank you all for coming.
We weren't sure, as we were looking at those weather reports from those L3Harris satellites, what was gonna happen. Thank you all for coming. Thank to all those that joined virtually. We're excited about the future. As we've said many times, we're adapting to the changing environment, we're scaling smartly because capacity is the new capability, and we're darn proud of that 8% CAGR over the next three years, and we'll see if we can do better. Have a great rest of the week. Thank you for your time.